Federal Insurance Office, NAIC and Others Update U.S. House Financial Services Members on Insurance Domestic Regulatory Standards’ Market Impact

 

Led by Federal Insurance Office Director Michael McRaith, a panel of insurance industry leaders testified in Washington D.C. at a U.S. House of Representatives Financial Services’ Housing and Insurance Subcommittee hearing yesterday, September 29, 2015. 

Entitled “The Impact of Domestic Regulatory Standards on the Competitiveness of U.S. Insurers,” the hearing examined the impact of existing and proposed federal and state regulatory standards on the U.S. insurance market.

In addition to negotiations on a covered agreement with the European Union to address further reduction of reinsurance collateral, topics discussed included insurance capital standards for systemically important insurance companies, coordination of state and federal regulators, and the impact of the Dodd-Frank Act of 2010 on insurance regulation.

“We question whether a covered agreement or any formal action by the federal government is necessary to resolve equivalence, as it is clear that recognition can be achieved through other mechanisms,” said Missouri Insurance Director John M. Huff, who testified for National Association of Insurance Commissioners, of which he is President-Elect.

Currently, the Federal Reserve is focusing on constructing a domestic regulatory capital framework for supervised insurance holding companies.  Enacted in 2014, the Insurance Capital Standards Clarification Act (S. 2270) amended a provision of the Dodd-Frank Act that had required the minimum capital standards for banks be applied to any insurance holding company that controls an insured depository institution or is designated for Federal Reserve supervision by the Financial Stability Oversight Council.

Federal Reserve Banking Supervision and Regulation Senior Advisor Tom Sullivan clarified that his agency’s role is not to impede on state regulation of individual insurance companies.

“(The Federal Reserve’s) primary role in supervision is as the group-wide supervisor for insurance holding companies,” Mr. Sullivan said.  “Our consolidated supervision and capital requirements will supplement existing legal-entity supervision with a perspective that considers the risks across the entire firm, including risks that emanate from non-insurance subsidiaries and other entities within the group.  Our role as the consolidated supervisor does not seek to lessen the critical importance of supervising individual insurance legal entities by the states.”

“We are committed to developing our insurance capital framework through a transparent rulemaking process that allows for an open public comment period on a concrete proposal,” he said.

He further explained, that, although using greater adaptability provided by the 2014 Dodd-Frank amendment, the Federal Reserve is “exercising great care” in approaching its mandate, tailoring the framework to the specific business lines, risk profiles, and systemic footprints of the insurance holding companies it oversees.  Accordingly, it has increased staffing and has been engaging extensively with other insurance supervisors, independent experts, regulated entities and market participants to solicit feedback on various potential approaches to the development of an appropriate consolidated group-wide capital regime for insurance holding companies that would be consistent with federal requirements.

Click below to view the written testimony of each Witnesses on yesterday’s panel:

• Mr. Michael McRaith, Director, Federal Insurance Office; U.S. Department of the Treasury
• Mr. Tom Sullivan, Senior Advisor, Department of Banking Supervision and Regulation; Federal Reserve Board of Governors
• Mr. John Huff, Director, Missouri Department of Insurance, Financial Institutions and Professional Registration, on behalf of the National Association of Insurance Commissioners
• The Honorable S. Roy Woodall Jr., Independent Member, Financial Stability Oversight Council; U.S. Department of the Treasury

Click here for the hearing memorandum.  To access the hearing video, click here.

 

 

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